The corrective arm: the excessive deficit procedure

SUMMARY OF:

Council Regulation (EC) No 1467/97 — speeding up and clarifying the implementation of the excessive deficit procedure

SUMMARY

WHAT DOES THIS REGULATION DO?

The Stability and Growth Pact (SGP) is the cornerstone of EU budgetary discipline. The corrective arm of the pact governs the excessive deficit procedure (EDP) which underpins the prompt correction of excessively high public deficits or excessively high public debt.

The Regulation seeks to clarify and speed up the EDP under Article 126 of the Treaty on the Functioning of the European Union (TFEU).

When an EU country does not respect the budgetary discipline required by the SGP, it may become the subject of an EDP which includes several steps.

KEY POINTS

Initiating the procedure

Under the SGP, the EDP is triggered by deficit and debt criteria:

• Deficit criterion: the general government deficit is considered excessive if it is over the reference value of 3 % of Gross Domestic Product (GDP) at market prices; or
• Debt criterion: debt is above 60 % of GDP and the target of reducing debt by 1/20th per year was not reached during the previous 3 years.

Stages of the procedure

• for the EU country whose deficit or debt exceeds the defined limits, the European Commission prepares a report evaluating whether or not to launch an Excessive Deficit Procedure;
• the Commission then sends a notice to the country in question and informs the Council if it considers that the deficit is excessive;
• on the Commission’s proposal, the Council decides by qualified majority whether, in light of the observations of the country concerned, the deficit is excessive;
• if the Council decides that a deficit is excessive, it makes recommendations to the country and prescribes a maximum time limit for it to take effective action (3 or 6 months);
• if a country persists in not implementing the recommendations, the Council may decide to give it formal notice to take measures to reduce the deficit within a specified period;
• if the country does not comply with the Council’s decisions, the Council may decide to impose sanctions.

Sanctions

Sanctions are imposed if the deficit is not reduced. For countries in the euro area, these sanctions are imposed on a gradual basis beginning with:

• the obligation to lodge with the Commission an interest-bearing deposit of 0.2 % of GDP in the preventive phase;
• the obligation to lodge a non-interest-bearing deposit of 0.2 % of GDP in the corrective phase. This deposit is converted into a fine of up to 0.5 % of GDP if the recommendations to correct the excessive deficit are not met.

In addition, all EU countries (except the United Kingdom (1)) may be subject to a suspension of commitments or payments of EU Structural and Investment Funds. Penalties are also imposed in cases of statistical manipulation.

Voting system

Decisions on most sanctions under the EDP are taken by reverse qualified majority. This means that a fine is deemed to be adopted unless the Council decides by qualified majority to reject it.

Moreover, the 25 countries which signed the Treaty on Stability, Coordination and Governance agreed to apply reverse qualified majority voting at an even earlier stage in the procedure, for example when deciding whether an EU country should be subject to an EDP.

SGP flexibility

In January 2015, the Commission published a Communication providing guidance to EU countries on making best use of the flexibility within the existing rules of the Stability and Growth Pact to encourage the effective implementation of structural reforms, promote investment and better take into account the economic situation of each EU country.

FROM WHEN DOES THE REGULATION APPLY?

It applies from 1 January 1999.

BACKGROUND

• Economic governance
• Press release

ACT

Council Regulation (EC) No 1467/97 of 7 July 1997 on speeding up and clarifying the implementation of the excessive deficit procedure (OJ L 209, 2.8.1997, pp. 6-11)

The successive amendments to Regulation (EC) No 1467/97 have been incorporated into the original text. This consolidated version is of documentary value only.

RELATED ACTS

Regulation (EU) No 1173/2011 of the European Parliament and of the Council of 16 November 2011 on the effective enforcement of budgetary surveillance in the euro area (OJ L 306, 23.11.2011, pp. 1-7)

Communication from the Commission to the European Parliament, the Council, the European Central Bank, the Economic and Social Committee, the Committee of the Regions and the European Investment Bank: Making the best use of the flexibility within the existing rules of the Stability and Growth Pact (COM(2015) 12 final of 13.1.2015)

last update 22.02.2016

(1) The United Kingdom withdraws from the European Union and becomes a third country (non-EU country) as of 1 February 2020.